News 30th April 2009

CALENDAR

GMT				Expected	Previous
1230	US	Mar	Personal Income Personal Income	-0.2%	-0.2%
			Personal Spending	-0.1%	+0.2%
1230	US	Apr	Weekly Jobless Claims	645K	640K
			Weekly Jobless Claims Net Change	+5K	+27K
			Continuing Jobless Claims		3137000
			Continuing Jobless Claims Net Change		+93K
1345	US	Apr	Chicago PMI Employment Index		28.1
			New Orders Index		30.9
			Prices Paid Index		34.1
			Purchasing Managers Index (Adjusted)	34.7	31.4
			Supplier Deliveries Index		48.4
1430	US	Apr	EIA Natural Gas Inventories, in billion cubic feet Total Working Gas in Storage	1822	1741
			Total Working Gas in Storage (Net Change)	+81	+46
2230	JPN	Mar	CPI (Nation), CPI ex-food (Nation) Japan Core CPI (on year)	-0.2%	0%
			Japan Overall CPI (on year)		-0.1%

FOCUS *The Swiss National Bank may well play cat and mouse with the currency market for some time to come. Ever since the SNB intervened to drive the Swiss franc lower on March 12, the market has assumed that it would try and halt the franc from rebounding again. However, the SNB has desisted from intervening again so far, even though the franc has regained about half of its losses. Earlier this week, SNB Chairman Jean-Philippe Roth was keen to remind the market that intervention, which has a Swiss method of boosting market liquidity, remains an option. “The market reacted (last time) and the market knows very well if we ever find ourselves in the situation we were in it will find us active once again,” Roth said. So, what has changed since March 12 that might have changed the SNB‘s appetite for intervention? Not too much.

*The Swiss economy remains under pressure and deflation remains a risk. Wednesday‘s KOF leading indicator for April, the country‘s prime economic data, may have come in slightly better than expected at -1.86 instead of the -1.90 that had been forecast. However, the index is still way down from the revised -1.65 index for March and suggests that the Swiss economy is still contracting even if there are signs of stabilization. Hopes for some stabilization in the global economy have also risen in the intervening weeks, with any signs of an upturn in the euro-zone economies seen as positive news for the largely export-dependent Swiss. This optimism over the global economy should raise global risk appetite and reduce the attraction of the franc as a safe haven.

*However, the outbreak of the swine flu in Mexico last weekend has put fresh upward pressure on the Swiss currency, not only because of the risks of a pandemic raising risk aversion again, but because Swiss pharmaceutical companies that make the antiviral drugs for battling the flu are very much back in favor. As currency strategists at BNP Paribas warned: “Euro/franc could see a short-term setback given the outbreak of swine flu.” Back in March, the SNB had managed to push the euro all the way back up to nearly CHF1.5440 when it launched its intervention exercise with the euro down around CHF1.4750. Since then, the euro has slipped back steadily and is now bouncing around just above CHF1.50 on fears that the Swiss central bank will come in again if it falls beneath that level.

EUROPE *Rising risk appetite is pushing the dollar and the yen lower and helping the euro and other high-yielders higher in Europe Thursday. The improved sentiment was being driven by optimism over the global recovery, especially after Japan reported a surprisingly strong 1.6% rise in industrial production for March. The market had only been looking for a 0.8% increase after February‘s 9.4% contraction. The market is also looking for a rise in the Chicago purchasing managers index in the U.S. later in the day. This will lift hope of an upturn in the second quarter and further help to justify the market‘s subdued reaction to Wednesday‘s news that the economy had contracted by 6.1% in the first quarter.

*The rise in risk appetite also suggested that market concerns about swine flu have subsided, even though the World Health Organization has raised its pandemic alert to level 5 from level 4. Analysts suggested that the low number of deaths associated with the flu so far has helped to reduce fears of a nasty impact on global growth.

WORLD *A comeback for global risk appetites keyed a broad sell off in the dollar against most currencies other then the yen Wednesday in N. Y., as the greenback received only limited relief from a guardedly more upbeat Federal Reserve policy statement. Eased levels of global risk aversion and a rally for global equity markets were the dominant forces working against the dollar Wednesday, driving it to multi-week intraday lows against the euro and other currencies prior to a modest recovery in the wake of the Fed statement.

ASIA *The yen gained back some ground lost overnight to the dollar and euro Thursday after more bad news emerged on the U.S. auto industry. After the Wall Street Journal reported that the U.S. Treasury Department‘s talks with lenders to keep Chrysler LLC out of bankruptcy had broken down, some players dumped dollars and euros for the yen, which they consider a safer haven currency. Although the foreign exchange market had largely already priced in failure for the troubled auto maker, some players had persisted in believing Chrysler could avert this outcome, dealers said.